Thursday, December 5, 2013

Preparing your Finances for Making a New Car Loan Purchase

If you want to get the best possible deal on a new car purchase, it should go without saying that you have to do your homework before you visit the car lot. A new vehicle should never be an impulse purchase. Unfortunately, this is precisely how many new car dealers operate these days. They don’t want to give you the opportunity to think twice about making a purchase because then you might have the opportunity to remember that your old car still runs fine, or worse, remember how important it is to comparison shop at other dealers around town before you settle on a car.

Preparing your finances for the expense of buying a new car has a bundle of benefits that may not seem to be particularly important at first glance, but cumulatively can save you thousands of dollars off the sticker price of the vehicle as well as in interest on your new car purchase. The following tips will help walk you through the lead-in steps to a new car finance purchase, and get you on the road much more inexpensively.

If you’re not saving up for a vehicle down payment right now, putting aside a little bit every month, then ask yourself, “why not?” You might think it’s no big deal, particularly with the flood of 100% financing offers that can be found, and what you might think is a lot of equity in your trade-in, but no other single aspect of buying a car will save you more money. Ideally, you want to put down between 10%-20% of the purchase price. This will lower your monthly payment by hundreds of dollars.

A clean credit report is another critical piece of the puzzle when you make a new car purchase. The three credit reporting agencies, Equifax, Experian, and Transunion are sought by creditors to find out how likely you are to not just pay your loan, but to pay it on time every month. Typically, the fantastic interest rates that are advertised by car dealers and manufacturers are based on consumers who display nearly perfect credit. Everyone else tends to get a somewhat less-than-stellar interest rate and terms. A high credit score entails a good mix of positive financial factors: smart credit use, a history of on-time payments, and a solid work history that allows you to make credit payments. Demonstrating these factors proves to creditors that you’re a good risk, and therefore, they’re more likely to make money, and won’t have a defaulted loan to deal with.

Credit reports aren’t infallible, though. That’s why it pays to keep track of your credit report from all three agencies. There’s a catch, however. A few years ago, consumer advocacy groups successfully lobbied to make it possible for consumers to receive one free credit report per year from each of the reporting agencies. The trouble is that the free report comes with strings attached. The agencies were losing money because of the free report thing, so they came up with subscription-based credit monitoring. Although useful in some regards, these services are expensive, and can total hundreds of dollars every year if you sign up for all three. They also give the hard sell to get out of the subscription, so be prepared to take no prisoners when you call to cancel after you receive your reports.

Shopping around before you make a new car purchase is the last, and arguably most critical area you’ll have to address when buying. Although this doesn’t strictly involve your finances previous to the purchase, it does play a part in your planning. After all, you want to have an idea for what you want before you start talking turkey. That way, you’ll know whether your finances as they currently stand will purchase the car you want without overextending yourself, and will give you the best interest rate possible.